Singapore funds benefit from Asian wealth

Singapore's business district skyline at dusk
Stephen Studd | The Photographer's Choice | Getty Images
Singapore's business district skyline at dusk

Singapore's rise as a global center for managing money has taken a big step with assets under management in the city state rising by nearly a quarter last year, putting it closer to matching Switzerland as a wealth management hub.

Funds managed in the city state rose 22 percent to S$1.63 trillion ($1.29 trillion), from S$1.34 trillion a year previously, the Monetary Authority of Singapore (MAS), the central bank, revealed on Tuesday. In comparison, there were SF2.8 trillion ($2.9 trillion) of assets under management in Switzerland last year, according to the Swiss Bankers Association,

(Read more: Less 'Secret' Switzerland Still Favorite Banking Hub: Julius Baer)

Asia was the biggest destination for investments from funds handled out of Singapore, accounting for 70 percent of all assets under management, up from 60 percent the previous year. Assets managed by hedge funds rose almost 8 percent to $77.5 billion from the previous year.

Hong Kong and Singapore are closing the gap with Switzerland and London as they benefit from the growing wealth of a new generation of Asian business people. Switzerland's private banking industry is suffering from a damaging row with the US over some Swiss banks' alleged complicity in tax evasion by US citizens.

"The recent regulatory lapses in Switzerland are a factor behind this growth but they have merely served to accelerate a trend that started after the 2008 crisis," said Amin Rajan, chief executive of Create Research, a fund management consultancy. "Asian investors have come to prefer Asian products, manufactured in Asia."

Martin Gilbert, chief executive of Aberdeen Asset Management, said: "The global balance in economic power is gradually moving from west to east and so it makes sense for fund and wealth managers to be based on the ground in Asia running money."

(Read more: Yoshikami: Singapore Banks Take Center Stage)

According to Boston Consulting Group the region, excluding Japan, posted a 13.8 percent rise in private wealth last year, to $28 trillion. That compared with a 5.2 percent rise to $35.8 trillion in western Europe, and a 7.8 percent rise to $43.3 trillion in North America.

Singapore has been a magnet for wealth managers and private equity groups tapping into southeast Asia, a region of about 600 million people where the largest economies – Indonesia, Thailand and Malaysia – are being driven by robust domestic demand.

(Read more: Wealth Managers Court Silicon Valley's Newest Millionaires)

"We continue to see strong interest from global fund houses, seeking to set up or expand their Asian presence," the MAS said at its annual briefing. The number of what it called "investment professionals" working in Singapore rose 8.5 percent to 3,312 in 2012.

However Singapore is also a crowded market for banks in wealth management, with costs high and returns lower than in Switzerland, bankers say.

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Industry experts say that while Switzerland's banks are grappling with damaging allegations that some helped American citizens evade tax, there is little sign that this is why Singapore is seeing a rise in fund flows.

Singapore's prime minister, Lee Hsien Loong, was this month keen to play down the notion that his country could ultimately overtake Switzerland. "I read somewhere that we might overtake Switzerland. I don't think that's true. I don't want that to be my marketing line," he said.

Singapore has in the past 18 months started tightening rules aimed at preventing tax evasion, amid moves by Group of 20 countries to clamp down on illicit funds and the growth of tax havens.

(Read more: Former Swiss Banker Pleads Guilty to US Tax Evasion)

In early July, Singapore introduced a law to penalize banks that facilitate tax evasion. It also plans to make it a money laundering offence for a bank to assist tax evaders in hiding their funds.

Tharman Shanmugaratnam, Singapore's finance minister, said earlier this year that the country would "continue to be a vibrant wealth management center, with laws and rules that safeguard legitimate funds and reject tainted money".

Swiss National Bank this month opened a branch in Singapore to help manage its Asian currency portfolio, becoming the first non-Asian central bank to start operations in the city-state. The move was another sign of the growing importance of Singapore – often dubbed "the Switzerland of Asia" – as a base for asset and wealth managers.